Retail Risk Management: Developing a Robust Strategy for Retail Operations

Retail Risk Management is an important element that helps different businesses protect their reputation, assets, and customers from various threats and uncertainties. Developing a robust retail risk management strategy is essential to manage any operational, identity, and financial risks. 

The entire process of retail risk management revolves around companies understanding their complex supply chain and distribution network. Then, implementing strict data protection protocols to avoid security breaches.

Owning any business comes with inherent risks, and operating a retail store or website is no different as it comes with its own unique set of risks. Such risks may cause severe loss to any physical items, cause data breaches, and even affect customers negatively. Fortunately, retail risk management can help you avoid these risks to effective implementation of robust strategies. 

How to identify retail risks?

Retail risk management differs from other industries primarily because of its focus on consumer behavior, market volatility, and supply chain intricacies. Risks in the retail sector often revolve around inventory management, product quality, customer satisfaction, and competition. Unlike some other industries where risks might be more centered on financial markets or regulatory compliance, retail risk management involves forecasting demand, managing seasonal fluctuations, and mitigating risks. 

Retail operations are not risk-free. Let’s look at some of the retail risks faced by businesses. 

1. Theft of Physical Items

Shoplifters and other criminals create major issues for traditional retail store operators. The average shoplifting incident cost US retailers about $460 in 2020, as per the National Retail Federation’s Retail Security Survey 2021. The average robbery cost retailers more than $7,500, and this number has also tremendously increased over previous years.

2. Data Breaches and Digital Theft

eCommerce crimes are on the rise because more people have started shopping online. Social media scams caused losses of $770 million in 2021, more than 18 times the earlier losses reported in 2017, as per the Federal Trade Commission 2022 Report. Website and app scams also cost the residents of the United States about $554 million that same year.

Then comes the digital criminals who target online retailers in several ways, such as launching phishing attacks or stealing customer information. A few of them also conduct fraudulent transactions with stolen credit cards. 

3. Inventory Damage

Natural disasters and weather events can affect both eCommerce businesses and physical stores that store goods in warehouses. They further damage physical structures and frequently cause power outages, too. This often results in product losses for several grocery stores or other retail outlets that mostly sell perishable items.

4. Customer Injuries

Shoppers cannot sustain physical injuries while browsing an eCommerce website. However, customers who visit a brick-and-mortar store can become injured in several ways, no matter how many signs the shop owner posts warning of wet floors or construction work.

5. Failing to Monitor Competitors

Ignoring the competitor’s activities might not be an obvious retail risk for many eCommerce stores or outlets. However, it could definitely cause individuals to lose customers and put their business’s health in jeopardy for a long time.

For instance, a person owns an independent community grocery store that might have no digital presence. It means they must check online to see whether competing businesses in their neighborhood have websites or remain active on social media platforms.

6. Forced Closure

The owner depends on a steady source of income if a shop’s overhead is high. That is why the loss of income can be devastating if a fire, burst pipe, or vandalism causes an unplanned closure. 

Without insurance, the respective owner could face additional headaches. These often include getting permits reinstated or defaulting on business loans on the storefront or its equipment. 

It is essential to build a robust strategy to mitigate these risks in retail, which affect the business’s profits and reputation. Let’s look at some strategies that retail business owners can implement to overcome the risks swiftly. 

What is retail risk management software?

Risk management software is comprised of many components that interact with each other and with other functions in the organization. It conducts risk assessment and risk analysis, implements the necessary controls, and administers internal audits to ensure the effectiveness of the risk management software.  

Let’s understand with an example where risk management software can be proved to be useful. For example, risk management software can provide businesses with better visibility into their supply chain and operations to understand their operations with supplier brands. Like as from where the material is sourced or other ESG-related risks to protect their brand, business, and customer. 

So, the business can implement risk management software to track and monitor ESG metrics, like quality, on-time performance, working conditions, and human rights. The retail management software can easily scan purchase orders to ensure that each supply partner is compliant with all the regulations and that documentation is current. The business can easily request for latest information if there is any missing data or if there is something fishy. 

How does retail risk management software prove to be beneficial for stores?

Let’s look at five benefits of having a retail risk management software: 

1. Automate time-consuming tasks

One benefit of retail risk management software is that it automates time-consuming tasks and allows employees to focus on more critical tasks. The software also makes it easy for teams to communicate, collaborate, and track progress on different tasks. 

2. Identify risks in a better way 

Implementation of effective risk management strategies depends upon timely risk identification and assessment. The software features loss-intake portals, confidential reporting, and easy-to-use continuous risk assessments, which help identify risks and document controls in real-time. 

3. Enhance report viewing through dashboards 

Risk management software provides a complete and holistic view of your organization’s risk landscape through real-time dashboards and reports. The reports provide critical data on aggregated risks, residual risk scores, and the overall value of net loss and its severity. It even offers compliance levels by the regulator and key risk indicator ratings by business units. 

4. Stay up-to-date with compliance standards

Risk management software includes built-in compliance management features that help organizations stay up-to-date with regulations and industry statements. Businesses can easily automate compliance assessments, track progress, and avoid hefty fines and penalties. 

5. Reduce operational costs 

The software not only saves the business from hefty fines, penalties, and reputation loss by not adhering to regulatory standards but also saves money by automating risk mitigation processes. Businesses can save money in the long term by reducing manual efforts and enhancing efficiency. 

Risk management software has become increasingly important in today’s digital business environment, where businesses face various risks related to operational, financial, regulatory, and more. This software acts as a centralized platform to manage all the risks efficiently. It becomes easy for businesses to identify, assess, and mitigate the rising risks appropriately.

Key features to look for in retail risk management software

Let’s look at some of the top features of retail risk management software to consider before investing in one: 

• Easy adaptability

Look for software with a lower learning curve. Understanding how to use software is a complex process, so in-depth training sessions are essential. 

• 24/7 customer service

Ensure that your software provider offers 24/7 technical customer support. Many issues may arise with the software, such as glitches, downtime, software bugs, and compatibility issues. 24×7 customer support will resolve the issues as soon as possible to avoid extended delays. 

• Myriad customization options

Get software that can be customized according to your retail business requirements. The software should have customization features in terms of functionality, reporting, and analytics.

• Robust security facilities 

Find a partner that offers software with robust security and authentication facilities. The software contains sensitive information, so advanced security controls, such as end-to-end encryption and multi-factor authentication, are essential.

• Automate the process.

Evaluate the software based on the tools it offers to automate the audit process. To streamline the audit process, you can register tasks, automate reminders, complete inspection tasks from any device, and allocate tasks to the team. 

Risk management software is well implemented in a risk-aware environment. Employees should be aware of all potential risks so it is easy for them to use the software to identify and resolve them proactively. 

What are the strategies for mitigating risks in retail?

Protecting people, assets, and intellectual property is a top priority for any particular retail organization, whether online or offline. Let’s look at some of the effective strategies to mitigate risks. 

1. Install physical security measures.

The best and the most common ways to protect your retail store is to install surveillance cameras and alarm systems to deter theft and identify perpetrators. You can even implement access controls, such as key cards or biometric scanners, to restrict entry to sensitive areas.

Employ security personnel to patrol the premises and respond to security incidents promptly. Prominently visible signage is required to indicate that security is present to aware anyone who considers stealing.

2. Invest in cybersecurity solutions for eCommerce.

A retail store should invest in encryption and authentication systems to guard the customer data being transacted online if it has an online store. Authentication makes it easy and secure for customers to log in and use your platform. 

Implement Firewalls and Intrusion Detection Systems to prevent cyber attacks. It is recommended to upgrade both software and hardware to fix already detected gaps and the ones that may appear.

Conduct training cybersecurity training sessions for employees to prevent falling for social engineering and phishing attacks.

3. Improve inventory and supply chain management.

Install inventory tracking systems to monitor stock levels, discrepancies, and theft. A retail manager should also develop strong relationships with reputable suppliers to ensure necessary products and unfailing quality.

It is best to diversify suppliers and keep backup suppliers if you want to prevent a supply chain discovery. Conduct audits and inspections to identify and address any issues with inventories promptly.

4. Buy customer safety and liability insurance.

Implement safety protocols and procedures to prevent accidents and injuries on the premises. Train employees in first aid and emergency response procedures to effectively address incidents. Purchase liability insurance to protect the business from potential lawsuits and financial losses. Inspect the premises for hazards and address any safety concerns to minimize the risk of accidents.

With all the risk mitigation strategies in place, retail business owners can ensure a smooth flow of retail operations. However, digital transformation is improving and enhancing operational efficiency in every industry, so you can utilize retail risk management software to handle the risks in the retail industry efficiently. 

Wrapping up

The retail risk management landscape for any industry is complex and vast in today’s world. New regulatory measures come into effect in the retail field each year, several new products hit the market, and new distribution channels are developed. That is why the management and leadership teams must take care of the risks associated with their respective retail outlets, stores, or organizations. 

Frequently asked questions 

• What are the major risks faced by retail businesses today?

Retail businesses face several risks in today’s world, but the most common ones include physical theft, customer injuries, inventory damage, data breaches, or forced closure. 

• How can retailers protect themselves against theft and fraud?

Retailers can protect themselves from theft and fraud by engaging in effective employee training practices. This involves training the workforce in theft prevention positions as a first line of defense.

• What cybersecurity measures are essential for eCommerce platforms?

All eCommerce platforms must have strong and secure network security protocols. These protocols include firewalls, encryption, and intrusion detection systems to prevent unauthorized access to sensitive information.

• How can retailers manage supply chain risks effectively?

Retailers can manage supply chain risks effectively by taking preventive measures. This involves developing and implementing a contingency plan in case of emergencies. This ultimately helps reduce the impact of a disruptive event.